New banking regulations, digital consumers, the eradication of passwords, contactless technology – these are just some of the trends that will shape financial services and payments in 2021.
By Gerhard Oosthuizen, chief technology officer at Entersekt
The past year has fundamentally reshaped all sectors of the economy by accelerating the move to digital and this will define the banking, transacting and payment trends that will continue into 2021.
As a result of Covid-19, consumers have been homebound which has pushed many traditional businesses further into becoming digital entities in order to service them – we estimate a 30% growth in digital. We have also seen a lot of digital first-timers, people signing up for online banking and e-commerce, moving away from traditional channels.
Many businesses with a strong presence in the real world have had to acknowledge that online transactions are now fully mainstream and realign themselves accordingly. That has provided some challenges. In the old days, registering a customer for a service would happen in a branch, shop or kiosk – but remote digital registration of customers is now an essential component of any business plan.
Even work behaviour has been significantly altered. People don’t give a second thought to working remotely and many businesses have reconfigured their operations to make this a permanent arrangement for employees.
This has set the scene for 2021 – working from home and transacting from home is now expected – it has moved from concept to reality.
The use of contactless technology is growing. More people are tapping with their cards but there’s also a lot more engagement with QR payments. We know that QR can work – it already does in Asia. Consumers like the idea of having complete control of transactions from their own device. They can authenticate themselves when transacting without the need to use a PIN pad. This year, we expect to see significant developments in QR and NFC-enabled tap and go payments because they do provide a richer experience for users.
Also expect the emergence of completely passwordless systems. With the roll-out of FIDO (Fast Identity Online) and the expanding network of FIDO-compliant solutions, we think organisations will start to do away with passwords. They’ll sign up customers by using biometric authentication through devices and digital identities people already have – like those enabled through banking apps, for example. You’ll never again have to worry about remembering or resetting passwords. That’s the promise, at least.
We will see accelerated uptake of delegated authentication in 2021 – the new banking specification that allows merchants to provide their customers with a vastly improved online shopping experience. Delegated authentication regulations mean merchants – instead of the traditional issuing banks – will take control of authenticating e-commerce payments, giving consumers a simple, intuitive checkout experience that looks and feels like an extension of the retail brand.
Europe is going through PSD2 now – the roll-out of regulations opening up competition in banking and electronic payment services. On 1 January, many of those regulations have taken legal effect, followed by another tranche at the end of the first quarter to do with 3-D Secure authentication of card-not-present payments. Europe isn’t really ready for this huge jump into “open banking”, so 2021 will be a year of pain for banks and their struggles with regulators, as well as competition from non-traditional quarters.
For banks, becoming PSD2-compliant takes a lot of work and doesn’t bring in any additional revenue. In fact, many banks see it as a competitive disadvantage because they are being forced to open up their systems and processes for the likes of Google, Facebook, Apple and many smaller niche fintech operations. A challenger can take all their valuable client data and use it to on-board their account holders.
There’s no doubt that open banking provides many commercial opportunities, but fraudsters will try to make use of the transition and weaknesses in the opening up of systems. The rest of the world needs to prepare for open banking because it’s coming to a theatre near you, whether through regulatory pressure or market forces. Many lessons will hopefully be learned from Europe’s experiences in 2021.
Across the pond in the United States, financial institutions are starting to see some of the challenges around faster payments. The faster money moves, the faster it can be stolen, so we’ll likely see some reaction to that in 2021 as fraud moves back up to being a top-level concern for banks.
Simply, this year is going to be about change – and managing that change without alienating already unsettled consumers. Organisations that put the customer experience front of mind will be the winners in 2021, but they must nonetheless expect additional pressure from regulators, new competition, ever more digitally-demanding consumers, and no slowdown in technological innovation.